How to Negotiate an Indemnity Clause (2026)

What an indemnity clause is, and why it is negotiated hard An indemnity is a promise to reimburse the other party for a defined loss if a specified thing happens. It moves risk from the party that would otherwise bear a loss to the party giving the indemnity. In a commercial contract (as opposed to an M&A deal) indemnities usually cover things like IP infringement claims, breach of confidentiality or data-protection law, third-party claims caused by one party's acts, and regulatory breaches. The clause is negotiated hard because it can create liability that is wider, and sometimes outside the liability cap, than ordinary damages for breach. So when you negotiate an indemnity you are negotiating four things: what triggers it, what it covers, how big it can get, and who controls any claim. This article is general guidance, not legal advice. The law here varies by jurisdiction, so have a qualified professional review your specific deal before you rely on it. ## The four things to negotiate ### 1. The trigger and scope

Read exactly what sets off the obligation. The party giving the indemnity (the indemnifier) wants a narrow, specific trigger ("losses arising from the Supplier's infringement of a third party's IP"). The party receiving it (the indemnified party) wants a trigger broad enough to catch the real risk, and a scope that includes defence costs, settlements and reasonable legal fees. Watch for the words "arising out of or in connection with", which widen scope considerably. ### 2. Fault versus no-fault Decide whether the indemnity applies only where the indemnifier is at fault, or whether it is a no-fault, pay-on-event promise. The indemnifier should resist indemnifying losses caused by the other party's own negligence or breach, and should add a proportionate-reduction wording so that its payment drops to the extent the indemnified party contributed to the loss. ### 3. Caps and interaction with the liability clause The biggest point: is the indemnity inside or outside the limitation of liability cap? Indemnified parties often push for key indemnities (IP, data, confidentiality) to be carved out of the cap or given a higher super cap. Indemnifiers push to keep indemnities inside the general cap. Settle this explicitly, because silence tends to be read in the indemnified party's favour and can expose the indemnifier to uncapped liability. ### 4. Conduct of claims For third-party claims, the clause should set out notice (prompt written notice of a claim), control (who runs the defence), cooperation, and settlement (the indemnifier usually cannot settle in a way that admits fault or imposes obligations on the indemnified party without consent). An indemnifier paying the bill reasonably wants to control the defence; the indemnified party wants a say where its reputation or ongoing rights are at stake. ## Sample wording to anchor the talks ``` INDEMNITY 1. The Supplier shall indemnify the Customer against all losses, damages, reasonable costs and expenses (including reasonable legal fees) arising out of any third-party claim that the Services or Deliverables infringe that third party's intellectual property rights. 2. The indemnity in clause 1 does not apply to the extent the claim arises from (a) the Customer's modification of the Deliverables, or (b) use not permitted under this Agreement. 3. The Customer shall (a) promptly notify the Supplier in writing of any claim; (b) allow the Supplier to control the defence and settlement, provided any settlement does not impose a non-indemnified obligation on the Customer; and (c) provide reasonable cooperation at the Supplier's expense. 4. The Supplier's liability under this indemnity is [subject to / carved out of] the limit in the Limitation of Liability clause [and capped at [SUPER CAP]].

|---|---|---|
| Trigger | Broad, catches the real risk | Narrow, specific |
| Fault | No-fault, pay on event | Only where at fault, proportionate |
| Costs | Includes defence and settlement | Reasonable costs only |
| Cap | Carved out of cap or higher super cap | Inside the general cap |
| Claims control | A say where reputation is at stake | Full control of the defence | ## Negotiation tactics that work - Always settle the cap interaction in writing; never leave an indemnity silent on whether the liability cap applies.
- Add a proportionate-reduction clause so the indemnity does not pay for the other side's own fault.
- Keep the trigger specific and tied to a named risk rather than a vague "any losses".
- Make the indemnity mutual for risks both sides can cause (for example each indemnifies the other for its own breach of confidentiality).
- Tie claims control to who carries the loss, with a consent gate on reputation-sensitive settlements. ## A note on jurisdiction How indemnities are read and enforced varies by jurisdiction. Some systems treat an indemnity as a primary promise that pays without proof of the usual damages elements; others import mitigation, remoteness or contribution rules unless the clause clearly excludes them. In India the indemnity is shaped by the Indian Contract Act, 1872 (sections 124 to 125), though courts have extended it beyond its literal wording. Whether an indemnity can be reduced for the indemnified party's own fault, and whether consequential loss is caught, both differ by jurisdiction, so confirm the local position with counsel. Last verified October 2026. ## Where one contract workspace helps An indemnity clause only does its job when its trigger, cap interaction and claims-handling line up with the liability clause, the insurance clause and the confidentiality terms in the same contract, and when you hold the same position across every deal. Reconciling those linked clauses by hand, contract after contract, is where exposure creeps in. Reconciling an indemnity clause with the liability, insurance and confidentiality terms around it, flagging the risky wording, and holding one consistent position from deal to deal can sit in one AI workspace tuned to how your company contracts, instead of being reworked by hand for each agreement. [Adira](https://adiralaw.com) is built along those lines. The checklist above is enough to work through one indemnity clause on your own; a workspace is what keeps those linked clauses aligned across every deal.